Brokers' take: Analysts positive about FCT on resilient retail portfolio

PHILLIP Securities, CGS-CIMB have maintained "buy" on J69U : J69U 0% (FCT) on its resilient retail portfolio, even as Singapore returns to Phase 2 (Heightened Alert) measures to curb the spread of Covid-19.

In reports released last Friday and today, the analysts cited the confidence of FCT's tenants as well as its efforts to help food and beverage (F&B) tenants as reasons for optimism in the real estate investment trust's performance.

Phillip research analyst Natalie Ong noted that although FCT's tenant sales were 6 to 19 per cent below pre-pandemic levels due to the Phase 2 (Heightened Alert) measures implemented in April this year, the performance of 45 per cent of its tenants in essential services such as supermarkets was resilient.

Furthermore, while FCT has been open to flexible lease structures with higher risk-sharing and has offered extensions as well as short-term leases to struggling tenants, 95 per cent of permanent leases signed are still on the traditional base-plus structure.

"We think this indicates its retailers' confidence in sustaining and improving their sales, as they have not opted for higher risk-sharing of profits," Ms Ong said, noting FCT's ability to bring notable tenants such as Don Don Donki, Dyson and Gram Cafe to its malls since the start of the year.

Meanwhile, CGS-CIMB analysts Eing Kar Mei and Lock Mun Yee also liked that FCT has been helping tenants through marketing instead of offering outright rental rebates. They noted that more than 50 per cent of F&B tenants have joined FCT's Makan Master app, which has seen order and sales figures pick up substantially.

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Still, the analysts believe that acquisition opportunities for prime suburban malls will be hard to come by given their defensiveness.

In their report, the CGS-CIMB analysts raised FCT's target price to S$2.91 from its earlier target price of S$2.87, with key catalysts including accretive acquisitions or better-than-expected rental reversion and downside risk of more Covid-19 restrictions.

"We continue to expect FCT to outperform its peers in operating metrics given its pure focus on suburban malls," they said.

Meanwhile, Ms Ong maintained "buy" on FCT, but lowered her target price to S$2.87 from S$2.88, noting that leasing and rental growth will be supported by further reopening of the Singapore economy.

"FCT's portfolio of well-located suburban malls is expected to draw a disproportionate share of leasing demand," she said.

Units of FCT were trading 1.3 per cent or S$0.03 lower at S$2.35 as at 3.12pm on Monday.